OHIO SUPREME COURT IMPOSES MANDATORY PENALTIES FOR EMPLOYEE-INITIATED

PREVAILING WAGE ACTIONS

If you underpay your employees on prevailing wage public improvement projects, be prepared to pay a 100% penalty on any underpayment, so says the Ohio Supreme Court. 

 On March 2, 2010, the Ohio Supreme Court issued its opinion in the case of Bergman et al. v. Monarch Construction Company.  In that case, Monarch Construction Company (“Monarch”) won a bid to perform work on a public construction project for Miami University.  Because the project was a “public” project, it was subject to Ohio’s Prevailing Wage Law.  The so-called “prevailing wage” is really a state mandated “minimum wage” for contractor employees who perform work on public projects, based solely upon the wages set forth in the collective bargaining agreement between the relevant local trade union and its affiliated union contractors.  Under Ohio’s Prevailing Wage Law, contractors found to have underpaid the prevailing wage are liable for the back payment amounts, plus a possible penalty of up to 100% of the back wage (25% to the affected employees and 75% to the Ohio Department of Commerce, the agency tasked with enforcing the prevailing wage law). 

Monarch’s troubles began after it subcontracted work to Don Salyers Masonry, Inc.  Salyers ended up underpaying its employees who worked on the Miami University project and then went out of business.  The Salyers employees then filed a prevailing wage complaint with the Ohio Department of Commerce.   

The Department instituted an investigation and determined that Salyers had indeed underpaid the prevailing wage to its employees to the tune of $368,266.34.  Because Salyers was out of business and Monarch was the general contractor, Monarch was held liable for the back wages.  However, under the circumstances, the Department waived any penalties. 

Several former Salyers employees then filed suit, arguing that the 100% penalty was mandatory.  Prior to this decision, the lower courts disagreed as to whether these penalties were mandatory or discretionary.  The Ohio Supreme Court agreed with the Salyers employees, and ruled that these penalties are indeed mandatory, unless the Department indicates that the underpayment was due to a “misinterpretation of the statutes” or an “erroneous preparation of payroll documents.” 

Here is some practical advice for employers who work on public projects.  If you are subject to a prevailing wage audit by the Department, make sure that you provide documentation that shows that any underpayment was the result of a “misinterpretation of the statutes” or an “erroneous preparation of payroll documents.”  Even if the Department fails to characterize any underpayments as such, you may still be able to appeal this issue into court. 

Finally, if you do sub work out, make absolutely sure that your subcontractors are paying the prevailing wage.  If you sub fails to pay the prevailing wage and then becomes “judgment proof” (i.e. goes out of business or bankrupt), you may be on the hook for any underpayment and any corresponding penalty.